Wait a second!
More handpicked essays just for you.
More handpicked essays just for you.
Budgeting as a tool of performance in organisations
Benefits to be gained from budgeting
Benefits to be gained from budgeting
Don’t take our word for it - see why 10 million students trust us with their essay needs.
Recommended: Budgeting as a tool of performance in organisations
Introduction
Budgets are an essential component of our lives, from our personal expenses, to our businesses or organizations, to the way our governments work. From a very early age, my mother tried to teach me the importance of planning and strategizing, included in what had to do with our finances. As I grew older, and especially as I became a student living on a modest stipend, I had to perfect the art of budgeting. The most difficult tasks for me were always having real expectations of the actual money I had, deciding what was absolutely necessary versus what was luxury, and thinking about saving in a strategic way. This translates to the strategies we need and follow in our workplace, as well as the everyday decision-making processes of the governing bodies of our communities. As Rachel Siegel and Carol Yacht suggest, one of the most important aspects of budgeting is making sure that the goals that are set play in harmony with the behaviors that are adopted. (Siegel and Yacht, 2010)
In understanding budget theory, one of the most basic concepts is the topic of this budget theory paper, comprehensive budgeting. Concepts like capital budgets and operating budgets emanate from the concept of comprehensive budgeting, which encompasses all the terms we consider in building our personal, organizational, and governmental budgets. The following section briefly describes what a comprehensive budget means, what it is comprised off, why it is important to understand, and a few examples.
Comprehensive Budget
As mentioned before, a comprehensive budget encompasses all the terms we are used to hearing in our financial life. In putting together a comprehensive budget you have to factor in recurring and nonrecurring incomes and expendi...
... middle of paper ...
...Conclusion
It is not difficult to understand the importance of comprehensive budgeting in managing our own personal finances, our organization’s finances, and our government’s finances. The same basic principles are translated to each level, and the accordance of goal setting and behaviors proves to be key in every sector. Budgeting proves to be very important for the successful development of our communities, and the process of budgeting serves as an essential tool to assess their financial realities and efficiently strategize to fix any issues and/or continue a growth path. Not doing so has many organizational, practical and even legal consequences, but when the financial irresponsibility rules for as long as it has in places like Puerto Rico, very severe and impactful repercussions (increased emigration, increased crime rate, etc.) are to be faced by the people.
For government budgeting to be effective, the process that guides it must be an evolving one. As the government gets bigger, it will most likely destabilize the existing method. Therefore, it must change to keep pace with the demands and growth of the country. The process must be capable of handling the complexity of our nation and its multifaceted needs so it will always need revisions and restructuring to face these new challenges. Its ultimate goal must be to reinforce the government and strengthen the country.
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
Top-down budgeting is the preferred method of budgeting for government agencies and many organizations (Ljungham). The methodology of top-down budgeting is described as “dominated by top members of the executive branch and the legislative branch” (Williams & Calabrese, 2011, 178). The methodology entrusts top members to make annual budgeting decisions for their organizations. In many instances, top members also use this time to set annual program or department goals and targets. Top members make these decisions without solicitation of input from bottom levels of an organization. This can result in operational and logistical constraints in the lower levels of an organization when plans are implemented (Williams & Calabrese, 2011). Additionally, it can serve as a source of frustration for staff when uninformed budgeting decisions create consequences. This is particularly true when staff is tasked with making things work in the aftermath of budgeting decisions, despite having clear or attainable goals and budgets. Like all budgeting methodologies, there are benefits and difficulties.
Participative Budgeting is the situation in which budgets are designed and set after input from subordinate managers, instead of merely being imposed. The idea behind this sort of budgeting is to assign responsibility to subordinate managers and place a form of personal ownership on the final budget. Nearly two decades of management accounting research has resulted in equivocal findings on the consequences and effects of participative budgeting (Lindquist 1995). Participative budgeting certainly has various advantages, these include the transferral of information from subordinate to superior increased job satisfaction for the subordinate, budgetary responsibility and goal congruence. Its disadvantages include budgetary slack and negative motivation, however it is the conditions in which participative budgeting takes place determines whether the budgeting process is successful. The conditions are dependent on various factors such as the level of participation, level of subordinate influence, the extent to which budgetary slack takes place, volatility, job related information, and the complexity of the budget.
As I progress through my schooling I have seen how budgeting and understanding how the little things add up and where all the money goes is important for everyone but it had a profound impact on me as it changed the way that I saw saving money. I’ve been studying finance for almost four years now the whole time it’s been with the desire to become a personal financial advisor. Over the last few years I have started to see the importance of the value of budgets and watching how your money flows in and out. This breakthrough is important to me as I begin to enter a career of advising others on how they should save their income and the decisions they should make to prepare for the future.
Budgeting is the track of money you receive, but allowing yourself to spend a certain amount without going in debt. Referring back to the statement I mentioned in the previous paragraph, this prepares us for the future. The effect this budgeting projecting has on me, is it taught me a life lesson. The lesson this taught me was that I can’t go all out spending a lot of money. I thoroughly understand this by me ending up on debt on my project. This had caused me to go back and modify my spending. I had to modify most of my wants to needs. Another topic we have learned dealing with the human needs are Maslow’s Hierarchy of Needs.
Capital budgeting is one of the primary activities of a company. Most of the company uses capital budgeting for decision making process of selecting and evaluating long-term investment. The company have to make a right decision with respect to investment in fixed asset such as purchasing of new equipment and delivery vehicles, constructing additions to buildings and many more. The decision must be right because of the project involve huge amount of cash outflow and it is committed for many years.
Making a personal budget can be a very simple or a very arduous task, depending on how one goes about it. One must find stable monthly expenses, such as rent, and manage the rest of their income around that amount. Depending on the steps an individual takes, this can be a very simple process. For this project, I was assigned to make three personal budgets for three different situations. This paper will outline the first.
Dickinson, G. (2004). Budgeting as easy as 1-2-3: How to ask for- and get- the money you need. Library Media Connection, 22, (6). 14-17.
The completeness of the budget is one measure of the financial health of the facility. ! Uniform format Regardless if showing the short- or long-term, the budget should remain in a uniform format. This is to allow for easy comparison and contrasting.
Line item budgeting categorizes various expenses and places them in list format on a document for budgetary purposes. This type of budgeting is considered the heartbeat of budgeting due to the systematic method by which it controls revenue and expenses, this is made evident when Tyer and Willand (1992), pointed out “Statutory or administrative controls could be imposed on the transfer of funds from one-line item to another, or between broad categories of expenditure.” According to Schick (1971), “line item budgets were attractive to legislative officials because they did not focus explicit attention on substantive policy issues or choices.”
Budgeting in the public sector is typically performed with the culmination of many departments. It combines planning and budgeting to assist individual departments in developing their budget to be consistent with specific objectives as well as strategic goals. Revenues can be particularly challenging to forecast due to unknowns such as enrollment and state funding. “Black Hawk College relies on three primary sources of revenue: tuition and fees, property taxes including Corporate Personal Property Replacement Tax (CCPRT), and state funding” (Black Hawk College, 2009). In addition to these revenue sources, the college receives revenue by way of interest income, facilities rental, federal sources, customized training, and contingency funding.
As time goes on, you will find that your original budget has some slaws. Some areas of budget planning might be overestimated, and some areas might be underestimated. Some of the flaws in budget making, for instance, are unemployment because if a person gets unemployed he has to have a strict budget to follow. For example making home food and not going out because that will result him in debt. Some of the other flaws are increase in rent, increase in car insurance because of accidents occurring, credit card payments, groceries, and eating out with friends. All of these flaws can cause a person to be more in debt and cau...
It requires an adequate and sound organizational structure, that is, there must be a definite assignment of responsibility for each function of the enterprise. Budgeting compels all the members of management, from the top to bottom to participate in the establishment of goals and plans. Budgeting compels departmental managers to make plans in harmony with the other departments and of the entire enterprise. Budgeting helps the management to put down in figures what is necessary for a satisfactory performance. Budgeting helps the management to plan for the most economical use of labor, material and capital. Budgeting tends to remove the cloud of uncertainty that exists in many organizations, especially among lower levels of management, relative to basic policies and objectives. Budgeting promotes an understanding among members of management of their co-workers' problems. Budgeting force management to give adequate attention to the effects of general business conditions. Budgeting aids in obtaining bank credit as banks commonly require a projection of future operations and cash flows to support